Dispositions

Unallowed PACs, unlike unallowed passive activity losses, aren’t allowed when you dispose of your interest in an activity. However, you may elect to increase the basis of the credit property by the amount of the original basis reduction of the property to the extent that the credit hasn’t been allowed under the passive activity rules. Unallowed PACs that aren’t used to increase the basis of the credit property are carried forward until they are allowed. To make the election, complete Form 8582-CR, Part VI. To be eligible to make the election for the basis adjustment, you must have disposed of your entire interest in a passive activity or a former passive activity to an unrelated person in a fully taxable transaction during the tax year. A fully taxable transaction is a disposition in which you recognize all realized gain or loss.

Subject to the exception below, no basis adjustment may be elected on a partial disposition of your interest in a passive activity.

Partial disposition of an activity. You may treat the disposition of substantially all of an activity as a complete disposition (rather than a partial disposition) of the part disposed of if you can prove with reasonable certainty:

1. The prior year unallowed losses, if any, allocable to the part of the activity disposed of; and

2. The net income or loss for the year of disposition allocable to the part of the activity disposed of.